Contract vs. Full-Time Employment: Key Differences Explained

The desire for contract work has grown in recent years. Many talented professionals are considering leaving their full-time positions and working on a contract basis.

However, if you’re looking for a new job, it’s a good idea to research and understand the differences between full-time and contract work before making the switch.

In this article, you’ll learn some key differences between full-time and contract work. You’ll quickly see that both options have their benefits and drawbacks, and you’ll be able to wade through the options and decide which arrangement might be the right fit for you.

What is contract work?

Contract workers do specific tasks and jobs for companies for a predefined period, with some similarities to freelancers. In exchange, they receive a wage or fee for the service provided.

Often, contract workers can earn more money than full-time employees because they can often charge higher rates due to specialized knowledge. Many work for multiple organizations or clients simultaneously. The financial downsides of contract work are that you may not receive the same benefits as full-time employees, and a contract position is not guaranteed.

Keep reading to learn more about the advantages and disadvantages of contract work.

Advantages of contract work

Contract workers enjoy advantages like:

• High demand. In the most recent McKinsey American Opportunity Survey, 36% of respondents identified as contract workers. This represents a growth of 27% since 2016.
• Flexibility. Contract employees may get to set their own hours. They generally don’t have to work a specific schedule—they only need to meet their deadlines.
• Ability to choose projects. Contract workers can turn down projects that don’t fit their interests or skill set. They have greater control over the work they choose to do.
• Greater earning capacity. Contract workers can often make more money than full-time salaried employees. They can also negotiate their own rates or set their own prices for service.

Disadvantages of contract work

Here are some of the drawbacks of being a contract employee:

• More volatility. Even full-time workers don’t have complete job stability, but contract workers may have to navigate a changing work landscape more frequently than other professionals.
• No benefits. Contract workers must pay for their own health care and insurance as the client doesn’t provide these benefits.
• No paid time off. As a contract worker, you will often be able to choose when you will (and won’t) work. The downside is that you won’t generate income when you don’t work.
• Higher tax bills. Contract workers must pay their entire self-employment taxes for Social Security and Medicare. They will not have money withheld from regular paychecks but will likely pay estimated federal and state income taxes each quarter.
• Business expenses. Contract workers pay for their own work-related expenses such as tools and travel. They may recover some of these costs in the rates they charge clients and in tax deductions.

What is a full-time job?

Full-time employees work a set number of hours (at least 130 per month in the U.S., or an average of 30 per week) in exchange for a predetermined wage or salary. The expectation is that these employees will put most of their working time and energy into their full-time jobs.

Generally, full-time employment offers greater financial stability, benefits, and paid time off than contract work. However, full-time employees often have less control over when and where they work, and their earning potential may be less than contract workers.

Below, you’ll learn more about the advantages and disadvantages of working full-time.

Advantages of full-time jobs

Being a full-time employee comes with benefits, such as:

• Job security. Full-time employees don’t have to worry about acquiring work on an ongoing basis. They have a more secure position and workflow from week to week than what a contract worker can expect.
• Benefits. Full-time workers usually have the option to receive several benefits on top of their salary, including health insurance, life insurance, and retirement plans.
• Social Security. Full-time W-2 employees pay just half of their own Social Security and Medicare while their employer contributes the other half.
• Short-term disability. If an unexpected health issue or crisis comes up, full-time employees can likely take short-term disability and miss work for some time without a complete financial loss.
• Paid vacation time. Most full-time employees receive a set number of paid vacation days in addition to various holidays, such as parental leave and sick leave as needed.
• Advancement opportunities. Full-time employees can receive opportunities for promotions within their company.
• Fixed schedule. Full-time employees usually work fixed hours (e.g., 9 a.m. to 5 p.m.) each weekday.
• More perks. Full-time employees often enjoy office parties, gym memberships, and social events, depending on their company culture.
• Financial stability. Full-time employees have greater income consistency than most contract workers. They know when (and how much) they’ll be paid each pay period, which makes financial planning and budgeting easier.
• Potential learning and development opportunities. Full-time employees may enjoy different professional development opportunities and employer training.

Disadvantages of full-time jobs

Although working as a full-time employee has multiple benefits, it also has several downsides to consider:

• Stagnation. It’s easy to fall into a routine when working a full-time job, which can cause some days to become boring or monotonous.
• Limited resume. If you’ve worked the same full-time job for several years, your resume may be limited to the tasks you’ve completed in that same position. This can make life as a job seeker more difficult.
• More work-related stress. Some full-time workers find it easier to stress about work outside of office hours since they spend extended time on the same daily tasks and projects without full control of their situation.
• Lack of control over work. Full-time employees often have much less choice over when and where they work than contract employees have.

Contracts vs. full-time employment

Understanding the difference between full-time and contract employment types is important before choosing which is right for you. In this section, you’ll learn what separates full-time jobs and contract work.

1. Employment status

Your job status will impact your employment tax liability and what benefits an employer must provide. Before you begin a working relationship with an employer or organization, they should clearly identify how they will classify you for tax purposes. You’ll need to consider the financial impact of that decision.

According to the IRS, you qualify as an employee when your employer maintains greater control over when, where, and how you do your work. As an employee, your employer can require you to work during specific hours and in a designated location. They may also pay certain business-related expenses on your behalf.

You’re an independent contractor if you earn money for a specific contract job or service. The client (or the person paying) can request a particular deliverable, but they don’t have the same level of legal control over how you do your work.

The main difference here is the level of commitment on both sides. If you’re an independent contractor, the client pays you for a specific deliverable. If you’re an employee, the employer promises a wage on an ongoing basis in exchange for regular time and output.

In the U.S., contract workers aren’t covered by the Equal Employment Opportunities Commission (EEOC). They also might not qualify for unemployment benefits, and their eligibility for workers’ compensation or disability varies by state.

2. Work schedule

Full-time employees and permanent employees usually work a set schedule based on their employer’s discretion. Some jobs allow remote work, while others require employees to be in a specific location. Full-time employees who aren’t exempt are entitled to overtime pay when they exceed 40 hours in a given workweek.

Contract workers often have more control over their work schedule. Since they earn money for each job or assignment they complete rather than hours at a set task, they typically don’t have to report at a specific time or location. They can often work when and where they want as long as they meet their client’s deadline, meaning they can be part-time (under 30 hours) if they choose.

Many contract workers enjoy their flexible schedule because it allows them to work multiple jobs, care for children, or simply have greater control over their time. The downside is that they won’t earn overtime or a supplemental pay rate if a specific project takes longer than expected as stated in the contract.

3. Salary and benefits

In most cases, full-time employees earn a set hourly or annual salary. They may receive their paycheck weekly, biweekly, or monthly. They often receive benefits besides their salaries, such as health care, retirement contributions, and paid time off for vacation or sick leave.

Compensation for contract workers is much different. Most contractors complete fixed-price projects and are paid an hourly rate or milestones achieved or upon completing an assigned project. They agree on this fee with the client or individual providing the work before the project starts.

Contractors often make more money per hour than full-time employees. The trade-off is that they don’t receive any employee benefits outside their salary. This means they’re responsible for their own taxes, health care, retirement contributions, and the half of Medicare and Social Security taxes normally covered by employers.

4. Job security

The laws dictate which circumstances would allow for the termination of a full-time employee. Nobody has full job security, but full-time employees usually have peace of mind that their jobs are secure as long as the economy remains stable and they don’t display gross misconduct or poor job performance.

This isn’t the case for contract workers. Even if a contractor has an ongoing relationship with a client, they usually aren’t formally guaranteed work on an ongoing basis. If the individual or group has no work to give them, they won’t be able to make money from that source after the project’s end date.

This is why many contract workers receive work from multiple sources simultaneously. Their flexible schedules and workloads allow them to maintain multiple working relationships at the same time, which provides financial protection if one opportunity dries up.

5. Workload and responsibility

Full-time employees usually have a written job description outlining the role’s responsibilities. These documents range in terms of length and complexity between different positions. Some full-time employees also receive other duties assigned outside their job description based on their organization’s needs.

Contract workers aren’t required to take on responsibilities outside their assigned projects. Their roles are usually project-based and limited to the tasks in their written contracts, which function as their job descriptions. This can contribute to better work-life balance.

6. Opportunities for growth and development

Because companies have long-term commitments to their full-time employees, they may offer opportunities for growth and development. This could be anything from a full onboarding process, formal mentoring and coaching, a chance to attend a seminar or conference, tuition reimbursement, or on-the-job training to prepare for a specific task.

Contract workers usually don’t get these same opportunities because of the limited scope of their responsibilities within the company. However, many companies employing multiple contractors occasionally invest in their development and turn their roles into permanent positions. Examples may include support and resource networks available to contractors who regularly contribute to the organization.

Which works for you?

As you can see, full-time and contract work are quite different. Everyone has their own needs and preferences, so it’s important to make an informed decision when choosing between a full-time job or a contract role.

Some factors to consider include:

• Salary needs. Full-time work may be your best bet if you want security and stability. If you’re comfortable with some risk and the potential for higher pay, perhaps you would enjoy contract work.
• Benefits options. As a contract worker, you likely won’t receive any benefits. If employer benefits are important to you, you may be well suited for full-time work.
• Personal preferences. Some people enjoy flexible schedules and remote work for their work hours. Others would rather have a set schedule and a designated workspace. What most resonates with you?
• Suitability for different career paths. Depending on your industry, full-time work may be a better option for you. Other career goals may align better with contract work.
• Industry trends. If you’re unsure whether full-time or contract work is your best option, research where others are succeeding in your field.

Find job opportunities on Upwork

The key differences between full-time and contract work are pay and benefits, work schedule, and job security. Full-time employees sacrifice potentially higher earnings and flexibility for benefits and greater job security. Contract workers enjoy more schedule control and potentially higher paychecks but lack the benefits and job security afforded to most full-time employees.

Since there is no one-size-fits-all answer, it’s important to understand your values, goals, and preferences as you think about which job is best for you. Consider the factors in this article as you decide which path will provide the greatest success and fulfillment.

Whether you’re searching for full-time or contract work, Upwork can help. Our massive online database contains hundreds of job postings for full-time positions and contract opportunities. You’ll find exciting work opportunities regardless of your preferred work arrangement.